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    Editorial: The great energy transition [NGW Magazine]


Energy companies must move toward collaboration. [NGW Magazine Volume 5, Issue 17]

by: NGW

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Top Stories, Insights, Premium, Editorial, NGW Magazine Articles, Volume 5, Issue 17, Energy Transition

Editorial: The great energy transition [NGW Magazine]

It is only to be expected if a magazine with a title such as ours comes across occasionally as a little defensive about gas. Take gas out of the global energy mix and we have little reason to exist. That said, NGW does not exist to defend gas but to write about it. For much of the time, the facts and figures of gas speak eloquently for themselves, which is why it has on the face of it such a great future.

Its biggest threat, such as it is, is political. The economics seem fine, in light of the cost of competition and the externalities. But the negative associations of gas with autocracies that do not follow Western ideals is certainly one risk it faces. This though can very often be managed through rational diversification of supplier and/or the application of carefully-directed political or economic pressure.

But all is not rosy on the horizon. Policy-makers, and industries with competing business models – chiefly in the electricity generation sector – are ignoring the affordability and reliability elements of the trilemma and focusing exclusively on sustainability, for which read zero carbon.

This is certainly winning friends in the investment community. It needs a safer haven for other people’s money, in today’s environment, than the former milk-cows – such as international oil companies – are able to provide.

The major oil and gas companies are playing along with this – for now at least. BP and Statoil for instance have just announced a major wind project off the US even as they, in common with the rest of their peer group, announce cuts and delays in upstream oil and gas exploration and development. BP is expected to explain, over a few days mid-month, how it will achieve its ambitious climate goals, set out briefly early this year. Demand for oil and gas however will grow along with the world’s population.

But obfuscation and deceit of the public on ‘clean’ electricity, for example, is a bad approach when collaboration across industry and governments is vital to achieve the man-made targets for carbon emissions reductions.

It is normal business practice for new entrants to carve out a niche for themselves at the incumbents’ expense. This has been the story of Europe’s gas market since liberalisation: those without take or pay contracts backed up by no-longer-captive customers can move in.

But the cost of the niche this time round is apparently going to be borne by the consumer. The conventional approach has been ignored: rather than find a cheaper alternative approach to gain market share, entrepreneurs have developed more expensive technologies. These have often been shoehorned into an existing market by governments eager to please.

Misleading claims are being made for the wind and solar industry: as has been pointed out elsewhere, the much-vaunted grid parity for UK wind farms is only possible in the context in which they operate: dispatchable nuclear or gas fired generation picks up the cost of balancing the system when wind or solar unexpectedly dip. Take that support system away and the real cost of generating despatchable renewable energy becomes infinitely higher – at least in a developed economy with an aversion to power-cuts.

In a process that started late last century, the ideas about rising carbon emissions being bad for the environment have crystallised into fixed percentages and degrees, and fossil fuels were targeted as the villain of the piece, regardless of their carbon content.

Whether or not that is right or wrong, it is well known that gas can replace fuel oil in shipping and heavy duty road transport and thereby cut greenhouse gas emissions, particulates and other harmful matter. And that gas can replace coal in the power sector, with even greater benefits for society. But those attributes are seemingly not enough: it must go the extra few miles to justify its continuing place in the world, and reconfigure itself chemically.

Blue and green hydrogen, carbon capture and storage and LNG carbon offsets all loomed large on the Gastech 2020 conference agenda – along with the destructive effects of Covid-19, which poses a threat to world prosperity that appears incompatible with the former goals.

By contrast, what is to replace much oil and gas has been given a green light at least from a policy point of view, with very little objection made to the lifecycle cost – to the environment and society – of batteries, wind farms and solar panels.

This is leading to paradoxes such as the felling of hardwoods to make wood pellets at the same time that companies are – presumably – planning to plant acres of woodland to offset the carbon inherent in their LNG. No offsetting may mean no share in the destination markets.

And renewably-produced hydrogen, if used as a fuel for power generation, is surely the most scandalous energy scheme ever foisted on consumers, reminiscent of Jonathan Swift’s joke about extracting sunbeams from cucumbers for use as winter heating, in his noted early-18th century satire, Gulliver’s Travels.

The time now has come for collaboration, however: a better social and natural environment is not a proper area for competition but it is an urgent objective. Suppliers of all kinds of energy must in the coming months include better and honest communication – both with each other and with governments – about the realities of their businesses and what measurements to use to assess their cleanness.